Electronic trader wants to cut out bank middlemen after Mifid II

Flow Traders, an electronic market-maker that specialises in exchange-traded products, hopes that new European trading rules could prompt investors to trade directly with the firm rather than via a bank.

Randolf Paling, co-head of trading at the Amsterdam-based company, wrote in its annual report for 2016 that the European Union's revised Markets in Financial Instruments Directive's emphasis on transparency and best execution will give investors a "clearer overview" of who they are trading with.

Paling wrote: "If an investor trades via a bank and the bank executes the trade via a liquidity provider like us, the investor may legitimately ask why the bank is still involved as a middleman. Why not trade directly with Flow Traders?"

That does not mean asset managers will become clients of Flow Traders, but that they will become trading counterparties.

The annual report showed that bonuses fell by 34.9% to €57.3 million for 2016, whereas basic wages and salaries increased by 30.6% to €18.8 million. The fall in bonus costs drove a reduction in total employee expenses to €84.2 million from €142.6 million.

Flow Traders awarded smaller remuneration packages to co-chief executives Dennis Dijkstra and Sjoerd Rietberg, who each received €1.9 million for 2016, down from the €3.1 million awarded in 2015. Their fixed base salary of €94,608 remained the same, whereas variable pay fell to €1.8 million from €3 million.

The firm awarded 19 of its employees remuneration of €1 million or more for 2016, down from 32 in 2015. The firm had 346 employees at the end of 2016, up from 268 a year earlier.

The fall in employee expenses came during a year in which net trading income fell to €250 million from €304.7 million. Decreases in Europe and Asia were partly offset by an increase in net trading income in the Americas. Net profit fell to €91.9 million from €97.3 million. The company is known for seldom having loss days.

Dijkstra, Rietberg and chief financial officer Marcel Jongmans said in the annual report that the Brexit referendum in the UK and elections in the US and Japan were among the reasons for reduced trading appetite among investors.

Flow Traders, which makes most of its money in Europe, has plans to open an office in Hong Kong in order to expand in Asia. The company also has its eye on growth in the US, where it will relocate to a new office in New York later in 2017.